Opinion
NO. 2018-CA-001559-MR
02-21-2020
AMOS SCAIFE APPELLANT v. TANESHA PERKINS; LISA MASK; and DARRELL ALSTON APPELLEES
BRIEFS FOR APPELLANT: Douglas E. Miller Radcliff, Kentucky BRIEF FOR APPELLEES: Dwight Preston Elizabethtown, Kentucky
NOT TO BE PUBLISHED APPEAL FROM HARDIN CIRCUIT COURT
HONORABLE KEN M. HOWARD, JUDGE
ACTION NO. 17-CI-00366 OPINION
AFFIRMING IN PART, REVERSING IN PART, AND VACATING IN PART
** ** ** ** **
BEFORE: GOODWINE, KRAMER AND LAMBERT, JUDGES. KRAMER, JUDGE: Amos Scaife appeals a judgment of the Hardin Circuit Court which, among other things, dismissed a service mark infringement claim he asserted against the above-captioned appellees and directed him to pay those appellees damages for "libel/slander," and damages and attorney's fees for "abuse of process." Upon review, we affirm in part, reverse in part, and vacate in part.
This appeal was originally assigned to Judge Shea Nickell as presiding Judge for a December 2019 merits panel. However, Judge Nickell was elected to the Kentucky Supreme Court in November 2019. Thereafter, this case was reassigned to Judge Kramer as presiding Judge. Adding to the delay in this 2018 case is that prior to submission to a merits panel, the parties requested motions for enlargement of time to file their respective briefs, which were granted.
FACTUAL AND PROCEDURAL BACKGROUND
Much of this appeal involves a series of indirect disputes over the ownership, control, and assets of "2 Tha Limit MC," an organization with over a dozen members, several chapters nationwide, and whose objectives, according to its March 15, 2016 "Constitution and Bylaws," are:
[T]o organize a family oriented motorcycle club; to increase the pleasure of riding motorcycles, sharing experiences and knowledge. Promote a better image of the bike community, and to better understand motorcycle operation and maintenance.
Also, much of the conflict in this appeal indirectly revolves around what "2 Tha Limit MC" is. According to appellant Amos Scaife, the organization is his privately-owned "nonprofit sole proprietorship." On the other hand, according to appellees Tanesha Perkins, Lisa Mask, and Darrell Alston, the organization began as a nonprofit unincorporated association, of which they became members; and it was later organized in 2016 as a nonprofit limited liability company.
And, much of the difficulty directly presented in this appeal stems from two overarching problems. First, if "2 Tha Limit MC" is either a nonprofit unincorporated association or nonprofit limited liability company, it has never been a party to these proceedings. See KRS 273A.010(1) ("An unincorporated nonprofit association is a legal entity distinct from its members and managers."); KRS 275.010(2) ("A limited liability company is a legal entity distinct from its members."). Second, a few of the claims the Hardin Circuit Court ostensibly resolved in this matter were either advisory in nature, beyond its subject matter jurisdiction to resolve, or never even asserted.
Kentucky Revised Statute.
With that brief preface in mind, we now proceed to the background of this case. "2 Tha Limit MC" was founded in Radcliff, Kentucky, around 2002 or 2003. Amos Scaife functioned as its National President for over a decade after its inception. On or about May 17, 2016, articles of organization were filed with the Kentucky Secretary of State for "2 Tha Limit MC, LLC." The articles designated this limited liability company as a nonprofit, member-managed entity, and listed Scaife, along with appellees Perkins and Mask, as its "organizers."
In November 2016, Scaife had what the parties characterize as a "falling out" with other members of the motorcycle club, who acted to remove him from office. Afterward, Scaife expressed his dissatisfaction in two ways. First, on January 3, 2017, he filed with the Kentucky Secretary of State a document styled "articles of correction," which purportedly related to 2 Tha Limit MC, LLC, and provided in relevant part:
I, Amos Scaife am the Sole Proprietor/ Founder/ CEO/ Organizer [of 2 Tha Limit MC, LLC].
This request is to remove the following persons, Lisa Mask and Tanesha Perkins, whom [sic] were not authorized to include their names on the initial application. However, the persons stated above added themselves without my approval or knowledge as you can clearly see in the Documents Attached. Lisa Mask and Tanesha Perkins names were never intended to be added, so therefore I am requesting that their names be Removed EFFECTIVE IMMEDIATELY.
I solemnly swear (or affirm) that the information given above by me is true and correct to the best of my knowledge and belief.
Sincerely,
Amos Scaife
Sole Proprietor & CEO.
The "the initial application" and "the Documents Attached" were apparent references by Scaife to the articles of organization for 2 Tha Limit MC, LLC, the only document of record Mask and Perkins signed and filed with the Kentucky Secretary of State.
Second, Scaife filed several small-claims actions in Hardin District Court against the members who had voted to remove him from office. The instant appeal arises from one such action, which he filed on January 18, 2017, against appellees Tanesha Perkins, Lisa Mask, and Darrell Alston. Scaife asked for $2,250 in damages, asserting in his small-claims complaint that these individuals:
Used my company's name for profit and still have company property that needs to be returned. Lied on fed documents for ownership of company's trademark.
The "fed documents" Scaife was referencing in his small-claims complaint were, as indicated, the articles of organization of 2 Tha Limit, MC, LLC, which were filed with the Kentucky Secretary of State on May 17, 2016.
Perkins, Mask, and Alston collectively answered, denying the substance of Scaife's complaint. They also asserted six counterclaims—four of which are at issue in this appeal—and sought damages exceeding the district court's jurisdictional limits. The matter was then removed to and refiled in Hardin Circuit Court the following month.
The two counterclaims that are not at issue in this appeal, which Perkins, Mask, and Alston denominated "Count IV" and "Count V," respectively asserted theories of intentional infliction of emotional distress and conversion against Scaife. The circuit court dismissed "Count IV" after finding Perkins, Mask, and Alston "did not meet the necessary proof elements for this claim." It dismissed "Count V" after determining Perkins, Mask, and Alston lacked standing because they were attempting to assert a conversion claim on behalf of a non-party (i.e., 2 Tha Limit MC, LLC).
We pause here to reemphasize that the nature of the parties' claims against one another is a critical subject of this appeal; the Hardin Circuit Court eventually committed several errors in resolving the parties' claims, owing largely to what the circuit court characterized their claims were. It is important, therefore, to define the parties' claims at issue in this appeal with as much clarity as possible, starting with a review of their pleadings.
We begin with Scaife's claims. After jurisdiction over this matter was transferred to the circuit court, he amended his complaint and alleged in relevant part as follows:
(2) Plaintiff has been the owner of a Kentucky Certificate of Service Mark Registration #018985 for "2 Tha Limit MC" since February 28, 2002.
(3) Defendants have infringed on Plaintiff's Registration by utilizing Plaintiff's registration, in violation of KRS 365.601.
(4) Plaintiff is entitled to recover from Defendants all profits derived by Defendants from the unlawful use of his registration; destruction of records containing his registration; treble damages; and an award of attorney fees. KRS 365.603 and KRS 446.070.
(5) Defendants have misappropriated Plaintiff's personal property without his consent and Mask and Perkins fraudulently added their names to Plaintiff's Articles of Organization with the Kentucky Secretary of State.
(6) Defendants' actions are of such oppressive and egregious nature that punitive damages should be awarded.
Thus, Scaife asserted three causes of action against Perkins, Mask, and Alston. Each of his three claims related to the ownership, control, and assets of "2 Tha Limit MC." His first cause of action asked for statutory damages against these appellees and an injunction based upon service mark infringement. A "service mark" is statutorily defined as:
[A]ny word, name, symbol or device or any combination of these, used by a person to identify and distinguish the services of one (1) person, including a unique service, from the services of others, and to indicate the source of the services, even if that source is unknown. Titles, character names used by a person, and other distinctive features of radio or television programs may be registered as service marks notwithstanding that they, or the programs, advertise the goods of the sponsor.KRS 365.563(2).
As indicated in Scaife's complaint, KRS 365.603 provides in relevant part that the owner of an infringed-upon service mark is entitled to the following remedies:
(1) Any owner of a mark registered under KRS 365.561 to 365.613, or under KRS 365.560 to 365.625 prior to their repeal, may seek to enjoin the manufacture, use, display, or sale of any counterfeits or imitations of the mark in any court of competent jurisdiction. The court may require the defendants to pay to that owner all profits derived from or all damages suffered by reason of the wrongful manufacture, use, display, or sale of the mark. The court may also order that any counterfeits or imitations in the possession or under the control of the defendant be delivered to an officer of the court or the complainant or be destroyed. The court may enter judgment for an amount not to exceed three (3) times the profits or damages, and may require reasonable attorney's fees to be paid to the prevailing party if the court finds the other party committed the wrongful acts with knowledge or in bad faith or otherwise according to the circumstances of the case.
Here, the "service mark" Scaife referenced in his complaint was the identifying logo of the motorcycle club. It consisted of a large, grey "2" with "MC" at center; a speedometer and tachometer in red and black stitching on reflective material; and the word "Tha" above "Limit" directly below the "2." Scaife also attached to his complaint a "certificate of service mark registration," which had been issued to him by the Kentucky Secretary of State. The certificate bore a registration number of "018985"; stated that Scaife claimed personal ownership of this service mark; and indicated the service mark had been effectively registered in Scaife's name as of December 16, 2016. In other words, the gist of Scaife's infringement claim was that he personally owned the motorcycle club's name and identifying logo. And, consistent with KRS 365.603(1), he asserted Perkins', Mask's, and Alston's continued use of the "2 Tha Limit MC" name and logo, ostensibly on behalf of 2 Tha Limit MC, warranted an injunction and subjected those individuals to statutory damages.
For his second cause of action, Scaife alleged Perkins, Mask, and Alston "misappropriated" his "personal property without his consent." In additional filings with the circuit court, he would later identify his "personal property" as the checkbook associated with 2 Tha Limit MC's bank account, along with "all items related to 2 Tha Limit MC." Put simply, this was a claim of conversion—yet another theory requiring him to prove his sole ownership of 2 Tha Limit MC.
Lastly, Scaife alleged "Mask and Perkins fraudulently added their names to [his] Articles of Organization with the Kentucky Secretary of State"—the same assertion Scaife had made in his "articles of correction" filed with the Kentucky Secretary of State on January 3, 2017. Once again, Scaife claimed sole ownership of 2 Tha Limit MC, LLC (hence the reference to his "articles of organization"); and, once again, he took issue with the fact that Perkins and Mask had signed "his" articles of organization as "organizers," purportedly without his permission, prior to filing them with the Kentucky Secretary of State on May 17, 2016. Scaife regarded their signatures on the articles of organization as a species of fraud and an unwarranted challenge to his sole ownership of the LLC.
See generally KRS 275.025 (specifying that limited liability companies are the entities that file "articles of organization").
The parties in this matter appear to misapprehend what an "organizer" of an LLC is. To clarify, an individual designated as an "organizer" in an LLC's articles of organization is not, due to that designation, a "member" or "owner" of the LLC. See KRS 275.020(1). Rather, organizers merely "form a limited liability company by delivering articles of organization to the Secretary of State for filing." Id.
As an aside, while Scaife asserted sole ownership of the LLC, he also asserted the LLC was not the motorcycle club, and that it owned nothing—not even its own name. Consistent with his first two claims, Scaife maintained that everything associated with 2 Tha Limit MC was his alone and that he had never contributed any property to the LLC.
Moving on, we will now discuss Perkins', Mask's, and Alston's four counterclaims relevant to this appeal. These appellees described the first of their counterclaims as follows:
2. The entity known as 2 Tha Limit M.C., LLC, hereinafter LLC, was formed in March, 2016 with the Plaintiff/Counter Defendant and Defendants/Counter Claimants, Tanesha Perkins and Lisa Mask, as the original members/founders of the organization.
3. On or about November 21, 2016, per the bylaws of LLC, the members of the LLC voted to have the Plaintiff/Counter Defendant removed as an officer and member of the LLC for various reasons.
4. Since that time the Plaintiff/Counter Defendant has acted in a [sic] outrageous and hostile manner towards the Defendant/Counter Claimants without any right or legal basis to do so in an attempt to undermine the authority of the Defendants/Counter Claimants as members/officers of the LLC.
COUNT I
5. On or about January 3, 2017 the Plaintiff/Counter Defendant filed with the Kentucky Secretary of State's office a document entitled "Articles of Correction" without any legal basis or right to do so.
6. The actions of the Plaintiff/Counter Defendant, have damaged the Defendants/Counter Claimants by causing them to incur legal fees to defend the meritless claims, all in excess of the jurisdictional limits of Kentucky's Circuit Court.
7. The actions of the Plaintiff/Counter Defendant was [sic] willful, outrageous, malicious, oppressive, and intentional towards these Defendants/Counter Claimants, in violation of statute and as such, are of the nature for which punitive damages can be awarded.
8. At all times herein, the Plaintiff/Counter Defendant knew or should have known, that the Articles of Correction were filed under false pretense and the allegations contained in the small claims complaint were false and vexatious, which should be subject to punitive damages to Defendants/Counter Claimants, said conduct being willful, outrageous, oppressive, vexatious, and totally without cause or merit against these Defendants/Counter Claimants.
9. Because of the inherently fraudulent and false allegations of the Plaintiff/Counter Defendant's small claims complaint, the Defendants/Counter Claimants are entitled to recover their reasonable legal fees, including attorney fees, expended herein in amount [sic] in excess of the minimum jurisdictional limits of this court.
The articles of organization for 2 Tha Limit MC, LLC, were filed with the Secretary of State on May 17, 2016. The reference to "March, 2016" possibly relates to when 2 Tha Limit MC adopted its "Constitution and Bylaws," which are dated March 15, 2016.
While "Count I" contended Scaife's pending claims were "meritless" and asked for attorney's fees and punitive damages, no definitive legal theory was attributed to "Count I" until perhaps over a year after the appellees asserted it. There are, however, three points about it worth emphasizing: Between Scaife's complaint and this counterclaim, there were clear disputes between these parties that involved a nonparty; namely, (1) whether "2 Tha Limit MC, LLC," and "2 Tha Limit MC" were one and the same entity; (2) who among them were members of the entity; and (3) who among them had the right to control the entity.
Specifically, in Paragraphs "2" through "4," Perkins, Mask, and Alston challenged Scaife's claim that he was the owner, or even an owner, of "2 Tha Limit MC, LLC." Indeed, the appellees not only asserted they were "members/officers" of the entity, they also asserted the members had "voted" to have Scaife "removed" from the organization, and that Scaife had no authority to act on behalf of the entity since November 26, 2016, the day of their vote. They also regarded Scaife's small-claims complaint and the "articles of correction" he had filed with the Kentucky Secretary of State as improper subsequent attempts by Scaife to challenge their claims of ownership and authority relative to the LLC. See Paragraph "4."
As to their second counterclaim, Perkins, Mask, and Alston described it as follows:
COUNT II
10. The Defendants/Counter Claimants reassert and reallege paragraphs 1-6 above as though set out in full herein.
11. On or about January 18, 2017, Plaintiff/Counter Defendant sued Defendants/Counter Claimants for misappropriation of property, in which Plaintiff/Counter Claimants falsely and maliciously and without probable cause, state that Plaintiff intended and fraudulently
deposed [sic] him of property he claimed ownership in without any legal or factual basis.
12. As a proximate result of Plaintiff/Counter Defendant's wrongful use of civil proceedings, Defendant/Counter Claimants have suffered humiliation, mortification, and loss of reputation to Defendant/Counter Claimants' damage in an amount exceeding the minimum jurisdictional requirements of the Circuit Court.
13. As a proximate result of Plaintiff/Counter Defendant's wrongful use of civil proceedings, Defendants/Counter Claimants have and will continue to incur reasonable legal fees in defending said complaint in an amount exceeding the minimum jurisdictional requirements of the Circuit Court.
It bears repeating that the appellees indicated, twice, that "Count II" was a claim for "wrongful use of civil proceedings."
As to their third counterclaim, Perkins, Mask, and Alston asserted:
COUNT III
14. The Defendants/Counter Claimants reassert and reallege paragraphs 1-10 above as though set out in full herein.
15. On or about January 3, 2017 the Plaintiff/Counter Defendant filed with the Kentucky Secretary of State's office a document entitled "Articles of Correction" without any legal basis or right to do so.
16. The Articles of Correction as recorded and published are false and defamatory.
17. At the time of such recording, the Plaintiff/Counter Defendant knew or could have ascertained with the
exercise of reasonable care that the statements contained therein were and are untrue, and, in making and recording in the public domain such false and defamatory matter [sic], Plaintiff/Counter Defendant was actuated by actual malice and wrongfully and willfully intended by such recording to injure the Defendants/Counter Claimants, Tanesha Perkins and Lisa Mask.(Emphasis added.)
18. By reason of such public recording, the Defendants/Counter Claimants, Tanesha Perkins and Lisa Mask, were injured in their credit and reputation and suffered great pain and mental anguish, all to their damage in an amount exceeding the minimum jurisdictional requirements of the Circuit court.
In its subsequent default judgment discussed below, the circuit court would characterize "Count III" as a claim of "libel/slander," asserted by appellees Perkins and Mask, based upon allegedly false statements set forth in Scaife's "articles of correction" filing with the Kentucky Secretary of State. In its final judgment, the circuit court would continue to label this as "libel/slander" and would ultimately find in favor of appellees Perkins, Mask, and Alston on this claim.
Lastly, in a subsequent amended answer, Perkins, Mask, and Alston made the following allegations regarding Scaife's purported ownership of the "service mark" discussed above:
6. The Defendants specifically deny the Plaintiff's allegation contained in paragraph 2 that has [sic] held a trademark [sic] on "2 Tha Limit MC" and further state
that it is a fraudulent allegation as the Plaintiff filed a false service mark with the Kentucky Secretary of State in December, 2016 after he was voted out of 2 Tha Limit MC, LLC in accordance with the bylaws and wishes of the other members.
7. The Defendant [sic] deny the allegations contained in paragraphs 3 and 4 and reiterate the trade mark [sic] recording by the Plaintiff was done fraudulent [sic] and the Plaintiff should be held liable to the Defendants for their costs and expenses, including but not limited to attorney fees for defending this frivolous complaint.
. . .
WHEREFORE, the Defendants pray and demand:
. . .
2. The Plaintiff's fraudulent registration of the service mark be deemed null and void and the Plaintiff be determined liable to the Defendants pursuant to KRS 365.597[.]
The appellees incorporated these allegations regarding Scaife's purported fraud in registering the "2 Tha Limit MC" service mark into their answer, but the circuit court eventually treated these allegations as the substance of a counterclaim. See CR 8.03. Specifically, the circuit court would treat this as a counterclaim to not only cancel Scaife's registration of the service mark, but also compel registration of the service mark in the name of "2 Tha Limit MC, LLC." As discussed below, however, this was a type of claim that only the Franklin Circuit Court, not the Hardin Circuit Court, would have had the authority to consider. See KRS 365.607(1).
Kentucky Rule of Civil Procedure.
In full, KRS 365.607 provides:
(1) Actions to require cancellation of a mark registered pursuant to KRS 365.561 to 365.613 or to compel registration of a mark pursuant to KRS 365.561 to 365.613 shall be brought in the Franklin Circuit Court. In an action to compel registration, the proceeding shall be based solely upon the record before the Secretary. In an action for cancellation, the Secretary shall not be made a party to the proceeding but shall be notified of the filing of the complaint by the clerk of the Franklin Circuit Court and shall be given the right to intervene in the action.
(2) In any action brought against a nonresident registrant, service may be effected upon the Secretary as agent for service of the registrant in accordance with the procedures established for service upon nonresident corporations and business entities under KRS 454.210(3).
Having outlined the claims respectively asserted by the parties, we will now address how the circuit court resolved them.
The circuit court initially resolved some aspects of these claims on April 19, 2017. On that date, Scaife had yet to file an answer, and the circuit court entered partial default judgment in favor of Perkins, Mask, and Alston regarding three of their counterclaims (i.e., counts "I," "II," and "III"). In relevant part, the circuit court held:
IT IS HEREBY ORDERED that judgment on said counterclaim [sic] is granted as follows:
1. As to count I of the counterclaim, judgment is hereby granted as to all defendants/counterclaimants in that they have been required to incur legal fees to defend the
claims of the plaintiff/counter defendant and a hearing will be held to determine the amount of fees and costs, if any, incurred by the defendants/counterclaimants at a later date and it is so ordered;
2. As to count II of the counterclaim, judgment is hereby granted as to the allegations of slander and libel in so far as the false and malicious statements made by the counter defendant and a hearing will be held to determine the amount of damages, if any, suffered by the counterclaimants as a result of the Plaintiff's actions at a later date and it is so ordered;
3. As to count III of the counterclaim, judgment is hereby granted as to the allegations of slander and libel for the counterclaimant Lisa Mask and Tanesha Perkins as a result of fraudulent filings made by the counter defendant with the Kentucky Secretary of State and a hearing will be held to determine the amount of damages suffered by the counterclaimants, if any, as a result of the Plaintiff's actions at a later date and it is so ordered[.]
In other words, while the circuit court's April 19, 2017 default judgment found in favor of the appellees regarding "Count I" of their pleadings, it did not identify what kind of legal claim "Count I" was.
It regarded the appellees' "Count II" as a claim of "libel/slander," and found in their favor regarding that claim—even though the appellees had twice identified that claim in their pleadings as a claim for "wrongful use of civil proceedings."
Furthermore, the circuit court's April 19, 2017 default judgment explicitly left each of Scaife's claims of ownership relating to 2 Tha Limit MC (i.e., ownership of the "2 Tha Limit MC" service mark, or "2 Tha Limit MC, LLC," or "all items related to 2 Tha Limit MC") unadjudicated. But, paradoxically, in the same order of default judgment, the circuit court found in favor of the appellees regarding their counts "I," "II," and "III"—counts that were based on the premise that each of Scaife's claims of ownership relating to 2 Tha Limit MC were so meritless, false, and vexatious that they warranted punitive sanctions and attorney's fees.
In any event, a bench trial was held on January 26, 2018, and the circuit court purported to dispose of what largely remained of this matter in a subsequent order of July 17, 2018. In its findings of fact and conclusions of law, the circuit court reviewed the evidence adduced at trial and made the following adjudications:
Service mark registration infringement. The legal resolution of this claim necessarily involves the determination of who owns the service mark. "2 Tha Limit MC" (Club) was organized in 2002-2003. The Club was organized by Scaife and other individuals. Prior to 2016 the exact legal status of the Club is unclear. However, whether for the first time or the last time the Club was organized as a Kentucky Limited Liability Corporation [sic] (LLC) in May, 2016 (Exhibit #5). More importantly, the Club adopted a Constitution and Bylaws dated March 15, 2016 (exhibit #1). The Court finds that the LLC as a member managed nonprofit limited liability company adopted and operated pursuant to said Constitution and Bylaws. Article XI of the Constitution and Bylaws requires all members and "prospects" to wear the Club "colors" and "logo" during
club rides/events. The Club logo illustration is attached as an exhibit on page 14 of the Constitution and Bylaws. The Club logo is the same as the service mark now claimed by Scaife individually.
Disagreement among LLC members led to an emergency meeting being held on November 27, 2016 in which Scaife was removed as an officer of the LLC. Scaife disputes the legitimacy of this meeting. It is in this context that the actions by Scaife must be considered in determining the service trademark [sic] issue. On November 29, 2016 a trademark/service mark application was filed with the Kentucky Secretary of State. The application was signed by Scaife as "organizer, founder, sole proprietor". (Exhibit #20). The certificate of service mark registration was issued by the Commonwealth of Kentucky on December 16, 2016 to "Amos Scaife" based on said application made under oath that the information provided is true, complete and accurate. KRS 365.570(4). During this time, Scaife additionally undertook other action to unilaterally take over ownership and control of the LLC to include submitting a Statement of Change of Registered Office, Registered Agent, or Both filed November 29, 2016; Statement of Change of Principal Office Address filed November 29, 2016; and "Articles of Correction" filed January 3, 2017 attempting to remove Lisa Mask and Tanesha Perkins from the LLC's Articles of Incorporation. (Exhibit #6).
The Court hereby holds that the logo and service mark is owned by the LLC. As provided in KRS 365.591 the Court finds that the registrant (Scaife) is not the owner of the mark and that the registration was granted improperly and therefore the Kentucky Secretary of State shall re-issue the certificate of service mark registration in the name of the LLC. Since Scaife did not individually own the logo or service mark, his claim for infringement pursuant to KRS 365.601 necessarily fails and is hereby dismissed with prejudice.
Misappropriation/conversion of personal property. Scaife claims the Defendants misappropriated and or converted his personal property. The testimony of Scaife at trial identified such personal property to be the Club checkbook, "briefcase, Club records and anything with the Club logo." Since the Court has found such items to be the property of the LLC, Scaife's claims for misappropriation/conversion must necessarily fail and are hereby dismissed with prejudice. Additionally, Scaife did not identify any monetary value for such property in his pretrial compliance as required by the pretrial order of this Court entered December 7, 2017.
Fraudulently adding the Defendants' names to Articles of Organization. There was conflicting testimony as to the LLCs articles of organization (Exhibit 5). In weighing the credibility of the witnesses' testimony and the documentary evidence, the Court finds that the Defendants did not fraudulently or inappropriately add their names to the articles of organization. Therefore, Scaife's claim for fraud is hereby dismissed with prejudice. The articles of organization reflect the truthful history of the Club/LLC. The parties were joined by a common interest to belong and operate a social motorcycle club for their enjoyment. From the evidence it appears that the Club was an unincorporated association of individuals for several years and then in 2016 was formally organized as an LLC. The function and operation of the Club, then LLC by the parties and other members was by consensus until the parties experienced a "falling out" later in 2016. There was a struggle for control of the LLC by the Defendants and other members and unilateral action taken by Scaife. The Court must apply the law relating to legal entities such as the LLC and not referee a "falling out" among former friends.
Punitive damages and injunction. For the reasons stated hereinabove Scaife's claims for punitive damages and
injunctive relief also must necessarily fail and are hereby dismissed with prejudice.
The November 27, 2016 meeting. The Court has determined that the Club was incorporated as an LLC in May, 2016 and that the Constitution and Bylaws (Exhibit #1) constitute the operating agreement of this member managed LLC as provided in KRS Chapter 275. Further analysis is necessary to determine the legal effect of the November 27, 2016 meeting. Article VI, section 3 provides that officers may be removed from office by a two-thirds vote of the membership at any business meeting, providing that the officer has an opportunity to defend himself against any charges before the voting membership. Article VII, section 1 provides that special meetings may be called by the chapter president or majority, providing the club members are given 48 hours' notice. The mostly undisputed testimony at the trial and the written minutes of the November 27, 2016 meeting (Exhibit #12) reflect the following: (1) Notice of this meeting was given to the members of the LLC 48 hours in advance, including Scaife. (2) Concerns by certain members as to Scaife's handling of the LLC's funds had been voiced to Scaife, discussed and a review of the financial accounts had been undertaken weeks if not months in advance of this meeting. (3) Prior to the November 27, 2016 meeting the parties and other members of the LLC met for the purpose of allowing Scaife to respond to member concerns about the handling of the LLC's funds. There was no resolution reached during this meeting. (4) The minutes of the special called meeting on November 27th reflect 14 members present and that by more than two thirds vote Scaife was removed as "National President" and as a member and officer of the LLC. The Court finds this action to be legally valid. Thus, all action taken by Scaife on behalf of the LLC after November 27, 2016 is null and void. Scaife is legally bound by the operating agreement (Exhibit 5) that he authored.
Damages for April 12, 2017 Default Judgment on the Defendants' counterclaim. The Defendants cannot be awarded damages for conversion of LLC's assets as that claim belongs to the LLC which is not a party to this action (this includes the claim for fraudulent registration of a trademark). The Court awards $2500 to each Defendant for slander/libel for the fraudulent filings by Scaife with the Kentucky Secretary of State after he was removed as an officer and member of the LLC. The Court awards zero damages for the claim of intentional infliction of emotional distress having found that the Defendants did not meet the necessary proof elements for this claim. The Court awards zero punitive damages.
Defendants' claim for abuse of process. This tort is comprised of two elements: (1) an ulterior purpose and (2) a willful act in the use of the process not proper in the regular conduct of the preceding [sic]. The Court finds that Scaife initiated the Small Claims Complaint in this action and by his Amended Complaint at the Circuit Court level had an ulterior purpose which was to unilaterally gain control over the LLC in violation of the operating agreement and Kentucky law. The Court further finds that Scaife [sic] ulterior purpose was to hide his handling of the LLC's funds. Therefore, both the Small Claims Complaint and the First Amended Complaint constitutes a willful act in the use of the civil courts not proper in the regular conduct of civil proceedings. The Defendants are each awarded the sum of $2500 as their individual damages to compensate for their time and energy in litigating this matter. Further, the Defendants collectively are awarded reasonable attorney fees for litigating this matter which will be determined in a separate hearing.
Following a subsequent hearing, the circuit court entered an order on September 17, 2018, determining the amount of the appellees' "reasonable attorney fees for litigating this matter" as follows:
The previous judgment of this court awarded the Defendants reasonable attorney fees on their claim for abuse of process. Counsel for Defendants submitted an affidavit dated March 11, 2018 indicating 44.5 total hours of legal work performed at $175 per hour. Counsel for the Defendants further stated at the hearing that he believed 50% of said time was spent on litigating the Defendants' claim of abuse of process. The court has reviewed in detailed [sic] said attorney fee affidavit and finds the total hours and hourly rate to be reasonable. The court further finds that a [sic] 50% allocation also to be reasonable under the circumstances of this case. Therefore, it is hereby Ordered that the Defendants collectively shall recover the total sum of $3,894 as attorney fees in this case.(Emphasis added.)
In short, the circuit court awarded the appellees attorney's fees based solely upon the premise that the appellees had asserted and prevailed upon a claim of abuse of process.
This appeal followed.
ANALYSIS
Scaife has not appealed the circuit court's resolution of his conversion claims or what the circuit court characterized as his "[f]raudulently adding the Defendants' names to Articles of Organization" claims, against these appellees. Scaife's arguments instead take issue with the circuit court's (1) decision to award $2,500 in damages per appellee, plus attorney's fees, for "abuse of process"; (2) decision to award $2,500 per appellee for "libel/slander"; (3) determination that he was properly "ousted" from 2 Tha Limit MC; (4) dismissal of his infringement claims, and consequent "award" of the service mark to 2 Tha Limit MC, LLC; and (5) directive to the Kentucky Secretary of State to cancel his registration of the service mark and re-register the service mark in the name of 2 Tha Limit MC, LLC. 1. The award of $2,500 in damages per appellee, plus attorney's fees, for "abuse of process."
To begin, Scaife contends the circuit court erred in determining he was liable to the appellees for abuse of process for two reasons: First, because the appellees never asserted a claim for abuse of process; and second, because the "damages" awarded to the appellees by the circuit court are not the type of damages permitted by that tort. We agree.
As a general matter, "a judgment should grant whatever relief a party may be entitled to, provided, however, that it must have at least some discernible relationship to the controversies in issue or be consonant with what is specifically pleaded and proved." Nagle v. Wakefield's Adm'r, 263 S.W.2d 127, 130 (Ky. 1953) (citations omitted). Likewise, a plaintiff may not assert new causes of action during the pendency of the proceeding which were not set out in the complaint, unless they are tried by the express or implied consent of the opposing party. See generally CR 15.02; Traylor Bros., Inc. v. Pound, 338 S.W.2d 687 (Ky. 1960).
Here, the appellees never asserted an "abuse of process" theory in their pleadings. The record also reflects the first time the appellees made any specific assertion of an "abuse of process" claim was in two paragraphs of a fourteen-page set of proposed findings of fact and conclusions of law, which they filed of record approximately one month after the trial was held in this matter. They do not demonstrate, much less insinuate, that Scaife expressly or impliedly consented to trying such a claim.
To the extent that the circuit court was using "abuse of process" as a surrogate for what the appellees asserted in "Count II" of their pleadings, it was further mistaken. "Wrongful use of civil proceedings"—the claim that the appellees asserted in "Count II," and which would have been unripe in any event—is not a synonym for "abuse of process"; they are two separate torts. See Garcia v. Whitaker, 400 S.W.3d 270, 277 (Ky. 2013) (delineating the differences between "abuse of process" and "malicious prosecution," the criminal law counterpart of "wrongful use of civil proceedings").
An essential element of any justiciable claim is ripeness. Doe v. Golden & Walters, PLLC, 173 S.W.3d 260, 270 (Ky. App. 2005). A "wrongful use of civil proceedings" claim, to be justiciable and ripe, requires as an essential element that the allegedly "wrongful" civil proceedings be "terminated in favor of the plaintiff." Prewitt v. Sexton, 777 S.W.2d 891, 895 (Ky. 1989) (quoting THE RESTATEMENT (SECOND) OF TORTS, § 681B). When the appellees asserted this claim in their pleadings, Scaife's claims against them (e.g., the allegedly "wrongful" civil proceedings) had not yet been adjudicated, much less terminated in their favor; and as this opinion reflects, Scaife continues to dispute the circuit court's disposition of his claims.
Likewise, "Count I" of the appellees' pleadings cannot be fairly read as a claim of abuse of process, nor did the circuit court properly adjudicate such a claim. Asserting a cause of action that is "meritless" or "vexatious" does not in and of itself equate to an "abuse of process." An abuse of process claim arises only when someone attempts to achieve through use of the court that which the court is itself powerless to order. As the circuit court acknowledged, the essential elements for the tort of abuse of process are: (1) an ulterior purpose; and (2) a willful act in the use of the process not proper in the regular conduct of the proceeding. Bonnie Braes Farms, Inc. v. Robinson, 598 S.W.2d 765, 766 (Ky. App. 1980). Examples of an abuse of process include an improper threat to continue the prosecution of an ongoing claim unless a concession is made on a collateral matter or the initiation of "a legal action for an improper purpose (demanding a result not authorized by applicable law) after threatening to do so unless the unauthorized result is granted." Sprint Communications Co., L.P. v. Leggett, 307 S.W.3d 109, 119 (Ky. 2010). Conversely—even though a party acts with malevolent intentions—if he has done nothing more than carry out the legal process to its authorized conclusion, an abuse of process claim will not lie. Simpson v. Laytart, 962 S.W.2d 392, 394-95 (Ky. 1998).
Here, the circuit court held that Scaife's "ulterior purpose" for initiating this litigation was "to unilaterally gain control over the LLC in violation of the operating agreement and Kentucky law," and "to hide his handling of the LLC's funds." As outlined above, however, that was part and parcel to Scaife's only purpose for initiating this litigation: His purported ownership of every aspect of 2 Tha Limit MC—including the LLC and its funds—was an essential precondition to the success of each of his civil claims against Perkins, Mask, and Alston. If his civil claims had succeeded, his ownership would have been vindicated—at least in the context of his litigation against Perkins, Mask, and Alston. That would have been the conclusion authorized by the process Scaife initiated. See Leggett, 307 S.W.3d at 119 (explaining abuse of process occurs where a result is demanded that is not authorized by the applicable law).
We further agree that the damages the circuit court awarded the appellees for abuse of process are not the type of damages permitted for that species of tort. To review, the circuit court awarded the appellees "the sum of $2500 as their individual damages to compensate for their time and energy in litigating this matter." As discussed, the natural consequences of a plaintiff carrying out legal process to its authorized conclusion—such as a defendant's embarrassment, humiliation, mortification, and mental anguish at having been publicly accused of a tort, are not cognizable as damages. See Raine v. Drasin, 621 S.W.2d 895, 902 (Ky. 1981), abrogated on other grounds by Martin v. O'Daniel, 507 S.W.3d 1 (Ky. 2016).
Indeed, cognizable injury for abuse of process is limited to the harm caused by the misuse of process. Raine, 621 S.W.2d at 902 ("an action for abuse of process will not lie unless there has been an injury to the [claimant's] person or his property"). And, as the appellees clarify in their collective brief before this Court, they did not sustain any harm from Scaife's asserted misuse of process; at best, someone else did:
Appellant brought suit to recover property that he claimed belonged to him when as discussed previously [it] was clearly property of the club/LLC. Appellant and the other members have represented that this is a non-profit organization.(Emphasis added.)
. . . .
The Appellant further argues that there was [not] damage to person or property when in fact the Appellant's taking of funds raised by the Appellees as members of the LLC is clearly damage to their property.
If, as the appellees contend, the property "injured" consisted of "funds raised by the Appellees as members of [2 Tha Limit MC,] LLC," or the "property of the club/LLC," it was not their property that was injured, but the property of nonparties to this litigation—either 2 Tha Limit MC, LLC, or a nonprofit unincorporated association by that name. See KRS 273A.010(1); KRS 273A.015(1); KRS 275.010(2); KRS 275.240(1).
In short, the circuit court erred in adjudicating an "abuse of process" claim in favor of the appellees, and we reverse to that extent. Necessarily, we must also reverse the circuit court's award of attorney's fees to the appellees, which was solely and explicitly premised upon their purported "abuse of process" claim.
2. The award of $2,500 per appellee for "libel/slander."
Scaife's next argument relates to the circuit court's adjudication of "Count III" of the appellees' counterclaims. This was the "libel/slander" claim relating to the "articles of correction" Scaife filed with the Kentucky Secretary of State. Scaife does not take issue with the circuit court's default judgment against him regarding liability and thus cannot deny that the statements set forth in his articles of correction were false. Rather, he contends the circuit court erred in awarding damages to the appellees of "$2,500 apiece." The relevant substance of his argument is as follows:
This filing was a matter of public record but there was no testimony at trial to support a finding of damage to the Defendants' credit or reputation. No witness testified at trial that they discovered this information on their own and reduced their opinion of the Defendants as a result of the information. Defamatory words are divided into two classes, "per se" and "per quod". Defendants' allegations fall into the category of "per quod", which require actual proof of damages.
We agree with Scaife's general contention that, due to a failure of proof, not all the appellees were entitled to damages relating to "Count III." As to why, the reason is obvious: As the circuit court itself recognized in its April 19, 2017 default judgment, only appellees Perkins and Mask asserted this claim. Appellee Alston, who was never mentioned in Scaife's articles of correction, did not. Accordingly, to the extent that the circuit court awarded Alston damages for "libel/slander," we reverse.
We disagree, however, with Scaife's contention that Perkins and Mask were not entitled to the damages awarded to them relative to "Count III" because his words were "per quod" defamatory, rather than "per se" defamatory. Taken objectively, what Scaife stated in his articles of correction was that Perkins and Mask had knowingly lied on a document they had filed with the Kentucky Secretary of State, namely, the articles of organization for 2 Tha Limit MC, LLC. "[A] person who executes a document with intent that the document be delivered to the Secretary of State for filing[,]" and who knows the document is untrue, is guilty of misdemeanor perjury. KRS 14A.2-030(1). Thus, Scaife's statements accused Perkins and Mask of criminal misconduct, which is per se defamation; actual proof of actual damages was not required. See Gilliam v. Pikeville United Methodist Hosp. of Kentucky, Inc., 215 S.W.3d 56, 60-61 (Ky. App. 2006); see also Miller v. Woods, 338 S.W.2d 412, 413 (Ky. 1960) (citations omitted) (noting "[i]n [defamation cases] there is no rule of law fixing the measure of damages just as there is no rule by which damages for pain and suffering can be measured. Nor can the damages be ascertained by any process of computation[,]" and noting further that "in cases wherein the defamation imputed involvement in crime, this Court as well as other courts have sustained rather liberal awards of damages").
Moreover, Scaife's assertion that no one apart from the appellees "discovered" what he had stated in his articles of correction is plainly refuted by the articles of correction themselves: The copy of his articles of correction included with the record before this Court bears a stamp indicating they were received and filed by the Kentucky Secretary of State's office.
3. The determination that Scaife was properly "ousted" from 2 Tha Limit MC.
Next, Scaife argues the circuit court erred in determining, in its July 17, 2018 order, that he was properly "ousted" from 2 Tha Limit MC as a result of the "November 27, 2016 emergency meeting." We agree. Even if the question of Scaife's continued membership in 2 Tha Limit MC had been squarely presented to the circuit court, the circuit court could not have provided these parties with any binding answer to that question. This is because any determination regarding Scaife's continued membership in 2 Tha Limit MC, to be effective and non-advisory, would need to bind 2 Tha Limit MC. But, the respective parties were before the circuit court in their individual capacities. None of them purported to represent the interests of 2 Tha Limit MC motorcycle club; and, whether it could be considered a nonprofit limited liability company or an unincorporated nonprofit association, 2 Tha Limit MC has never been a party to these proceedings. Thus, we vacate the circuit court's finding in this regard. Courts are not permitted to render advisory opinions. Freeman v. Danville Tobacco Board of Trade, Inc., 380 S.W.2d 215 (Ky. 1964); Commonwealth ex rel. Watkins v. Winchester Water Works Co., 303 Ky. 420, 197 S.W.2d 771 (1946). 4. The dismissal of Scaife's infringement claims, and consequent "award" of the service mark to 2 Tha Limit MC, LLC.
We use the word "membership" here generally and make no attempt to define who among these parties, if anyone, could be a "member" of 2 Tha Limit MC, LLC, within the meaning of KRS 275.015(17). If it is truly a nonprofit LLC, 2 Tha Limit MC, LLC, may well have no members. See KRS 275.015(12); see also KRS 275.520(1) ("Unless a nonprofit limited liability company has only business entities formed for a nonprofit purpose as its members, a nonprofit limited liability company shall not have or issue membership interests in the limited liability company, and no distribution shall be paid, and no part of the income or profit of the limited liability company shall be distributed to its members or managers.").
Next, Scaife contends it was error for the circuit court to (1) dismiss his claim of infringement; and (2) enter an order awarding the "2 Tha Limit MC" service mark to 2 Tha Limit MC, LLC.
We disagree with the first part of Scaife's argument. The circuit court resolved Scaife's claim of infringement through a bench trial. In that context,
CR 43.01 placed the burden and risk of non-persuasion on [Scaife] as to the issues upon which the trial court made findings. CR 52.01 limits our review to the question of whether those findings are clearly erroneous and admonishes us to give due regard to the opportunity of the trial court to judge the credibility of the witnesses.
When the trial court makes a finding of fact adverse to the party having the burden of proof and his is the only evidence presented, the test of whether its finding is clearly erroneous is not one of support by 'substantial evidence', but rather, one of whether the evidence adduced is so conclusive as to compel a finding in his favor as a matter of law. Cf. Withers v. Berea College, Ky., 349 S.W.2d 357 (1961); Begley v. Wooton, Ky., 350 S.W.2d 497 (1961).Morrison v. Trailmobile Trailers, Inc., 526 S.W.2d 822, 824 (Ky. 1975).
Thus, to succeed on his claims of infringement, Scaife was required to demonstrate through preponderant and persuasive evidence that he was the "owner" of the "2 Tha Limit MC" service mark he had registered with the Kentucky Secretary of State. KRS 365.603(1). The evidence Scaife produced in support of his claim of ownership consisted of: (1) the "certificate of service mark registration," which, as discussed above, had been issued to Scaife by the Kentucky Secretary of State on or about December 16, 2016; and (2) Scaife's own testimony that he had designed the service mark in 2002 and had used it in conjunction with operating 2 Tha Limit MC—what he asserted was his "non-profit sole proprietorship."
But, the "certificate of registration" Scaife received from the Kentucky Secretary of State was merely proof that he registered the service mark. KRS 365.577(2). It is not proof that he owned it, nor does it validate Scaife's statements to that effect. See KRS 14A.2-100(6). To the contrary, ownership of a service mark is obtained through actual use; in other words, "[t]he first to use a mark in the sale of goods or services is the 'senior user' of the mark and gains common law rights to the mark in the geographic area in which the mark is used." Allard Enters., Inc. v. Advanced Programming Resources, Inc., 249 F.3d 564, 572 (6th Cir. 2001).
KRS 14A.2-100(6) provides:
The Secretary of State's duty to file documents under this section shall be ministerial. The filing or refusal to file a document shall not:
--------(a) Affect the validity or invalidity of the document in whole or part;
(b) Relate to the correctness or incorrectness of information contained in the document; or
(c) Create a presumption that the document is valid or invalid or that information contained in the document is correct or incorrect.
Moreover, apart from being uncorroborated, Scaife's testimony that he was the first to use the mark in the provision of services was contradicted. The appellees, whom the circuit court deemed more credible, testified that since the inception of 2 Tha Limit MC, they did not consider it anyone's "sole proprietorship." Rather, it was a social motorcycle club consisting of members, including themselves, commonly interested in operating motorcycles for enjoyment. They testified the service mark was the property of the club and had always been devoted to promoting club purposes. They also testified the first time Scaife asserted ownership of the 2 Tha Limit MC service mark was after the other members had voted to remove him from the club on November 26, 2016; and their testimony is supported by Scaife's first and only application to have the service mark registered in his name, which was dated three days afterward.
Scaife's testimony was also undermined by the March 15, 2016 "Constitution and Bylaws," which Scaife drafted and signed. As the circuit court observed, this document described the service mark as the logo of the club and as part of the required dress of club members.
Scaife's belief that 2 Tha Limit MC is his "nonprofit sole proprietorship"—as opposed to a nonprofit unincorporated association or nonprofit limited liability company—is also a legal impossibility. For all purposes, sole proprietorships are indistinguishable from the private individuals who operate them. See Kentucky Employers' Mut. Ins. v. Ellington, 459 S.W.3d 876, 882 (Ky. 2015). Thus, because Scaife is not tax-exempt himself, he could not operate a tax-exempt (e.g., "nonprofit") "sole proprietorship." 26 United States Code § 501(c)(3), which governs tax-exempt status eligibility to organizations, does not permit individuals to become tax-exempt. Only corporations, limited liability companies, certain trusts, and unincorporated associations are eligible. Id.
In short, Scaife's evidence regarding his ownership was not so compelling that it was error for the circuit court to disregard it. Accordingly, we affirm the circuit court's decision to dismiss his claim of infringement.
However, the circuit court erred when it proceeded to determine 2 Tha Limit MC, LLC, was the owner of the service mark, and we vacate to that extent. To be clear, this case was not a declaratory judgment action. As the case was pled and practiced, the circuit court had no capacity to judicially determine the ownership of the service mark between Scaife and 2 Tha Limit MC, LLC—a nonparty—if indeed 2 Tha Limit MC, LLC, even disputed ownership. As established by the pleadings, this was simply an infringement action between a purported owner of a service mark—Scaife—and purported infringers—Perkins, Mask, and Alston.
It is true that a plaintiff in an infringement action must provide evidence of ownership of the property in question. Ownership is an evidentiary fact that must be established by preponderant evidence. The same is true of a common law trespass action. In both cases, the fact that ownership (or in the case of trespass, at least possession) of the property is an element of the tort does not, however, convert the resulting judgment into a declaration of ownership of the property in question. See Fleming v. EQT Gathering, LLC, 509 S.W.3d 18, 22-23 (Ky. 2017) (explaining this proposition in the context of trespass).
In other words, a defendant in a premises liability action who denies liability by disclaiming ownership of the property does not thereby trigger a title dispute over the property. Id. at 23. The defendant in a trespass case may, likewise, challenge the plaintiff's ownership of the property without instigating a boundary line dispute among the neighboring landowners. Id. By the same logic, if the fact-finder is not satisfied from the evidence that the plaintiff in a service mark infringement action owns the service mark in question, it would simply render a verdict rejecting the infringement claim. On the other hand, if the trier of fact was satisfied that the plaintiff owned the service mark, it would award damages. In either instance, all the parties to the claim would be accorded complete relief; the verdict would have no effect upon the title to the property, let alone vest a nonparty with title; and the resulting judgment would not impair, impede, or have a res judicata effect upon any nonparty's claim of ownership. Id. 5. The Hardin Circuit Court's directive, to the Kentucky Secretary of State, to cancel Scaife's registration of the service mark and re-register the service mark in the name of 2 Tha Limit MC, LLC.
The circuit court also erred when it held Scaife's "registration was granted improperly and therefore the Kentucky Secretary of State shall re-issue the certificate of service mark registration in the name of the LLC." This is so, not only because the circuit court was purporting to grant relief in favor of a nonparty, but also because it was purporting to grant relief it had no right to grant any party: Only Franklin Circuit Court is vested with jurisdiction over actions to either require cancellation of a registered service mark or compel registration of a service mark; furthermore, the Kentucky Secretary of State must be notified of such actions, which obviously did not occur here. See KRS 365.607(1). Hence, we vacate this aspect of the circuit court's judgment as well.
CONCLUSION
Consistently with what is set forth above, the judgment of the Hardin Circuit Court is AFFIRMED IN PART, REVERSED IN PART, and VACATED IN PART.
ALL CONCUR. BRIEFS FOR APPELLANT: Douglas E. Miller
Radcliff, Kentucky BRIEF FOR APPELLEES: Dwight Preston
Elizabethtown, Kentucky